Under the most simple form of depreciation, the company might allocate $100 of the cost of the generator to its expenses every year, until the $1000 capital expense has been "used up." Under accelerated depreciation, the company may be allowed to allocate $200 of the cost of the generator for five years. If the company has $200 in profits per year (before consideration of the cost of the generator or any effects of debt or other factors), and the tax rate is 20%: a) Normal depreciation: the company claims $100 in
Based on this estimate, should Vodafone shareholders support the deal? What fraction of the synergies is appropriated by Vodafone shareholders and what fraction by Mannesmann shareholders? What is the present value of the expected synergies as shown in Exhibit 10? (Assume that the synergies related to revenues and costs grow at 4% annually past 2006, that savings from capital expenditures do not extend beyond 2006, and that the merger will not affect the firm’s level of working capital.) Use the average exchange rate of EUR/GBP=1.5789, and the Goldman Sachs WACC.
PMT = (.1085/2)*1000=54.25 N = 60 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1,190.90 b.What is the value of this bond 10 years after it was issued? PMT = (.1085/2)*1000=54.25 N = 40 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1170.20 The price will decrease as approaching maturity since at maturity (just before expiration) it will be worth the par ($1,000) since this is a premium bond. 2.Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose.
Accounting profits includes costs such as depreciation, interest, and taxes to run a business therefore it should not affect free cash flows. The period of time given for the free cash flows cover year zero through five and reveal the financial benefit of the project. Financial projections for duration of project There is annual working capital requirement of $100,000 to initiate the project. An increase is shown for years one through three. Net working capital will equal 10% of the sales revenue for each year.
Since PacifiCorp is not a publicly traded company, we must use valuation multiples from comparable firms to determine the value of the firm. As you can see in Exhibit 1, if we use the valuation multiples we arrive at an implied firm value of between $6,252 million (low end) and $9,289 million (high end). This means that our offer of $9.4 billion is right in line with the high end valuation of the company. We also used multiples to determine that the market value of equity was worth between $4,277 million and $5,904 million (see Exhibit 1). As stated earlier, we offered to pay $5.1 billion for the equity portion of the company.
What are the earnings after interest? Firm A Firm B EBIT $3,000.00 $3,000.00 Interest 0 500 $3,000.00 $2,500.00 c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b. Firm A Firm B Sales Revenue: 11,000 x $2.50= $27,500.00 $27,500.00 Variable Cost: 11,000 x $1= $11,000.00 $11,000.00 Fixed Cost: $12,000.00 $12,000.00 EBIT $4,500.00 $4,500.00 Interest: 0 500 $4,500.00 $4,000.00 50% 60% Increases d. Why are the percentage changes different? The percentage changes are different because of the interest Firm B is paying on their debt interest.
We created the following examples to show how WACC could potentially influence Marriott’s financial decisions: Suppose Marriott is taking on a project that requires a $100,000 initial investment, which produces cash inflows of $20,000 per year for 10 years. If we use Marriott’s current WACC of 9.29% the project would produce an NPV of $26,730. If we use the Target WACC, 10.24% for Marriott the NPV would be $21,634. Deciding based on the assumption of an NPV of $26K but it will actually achieve a NPV of $21K. Management will have to explain to shareholders why they were unsuccessful in achieving increased shareholder value.
March 7th 2012 ECS3250 (2011-2012) Coursework Name: Sean Goodwin Student I.D: M00295169 Part 1 Abbey Trading Company is considering a project that is susceptible to risk. An initial investment of £90,000 will be followed by three years each with the following expected cash flows (there is no inflation or tax): | £ | £ | Annual sales (volume of 100,000 units multiplied by estimated sales price of £2) | | 200,000 | Annual costs (volume of 100,000 units multiplied by unit labour, material & other costs respectively) | | | Labour | 100,000 | | Material | 40,000 | | Other | 10,000150,000 | (150,000) | | | 50,000 | The initial investment consists of £70,000 in machines, which have a zero scrap value at the end of the three-year life of the project and £20,000 in additional working capital which is recoverable at the end. The discount rate is 10%. (1) Calculate the NPVof the project and explain what it means The NPV of the project is £54,345, meaning firstly that this project has a positive present value and therefore worth the time to consider further if it is viable. We arrive at this NPV figure by using all the information given above.
With this new development, if we assume that the previous 4,796,000 shares of common stock that were originally issued in March of 1993 are now also worth $1 per share, this gives a total of $4,796,000. The total valuation of the company will then be $800,000 + $4,796,000 = $5,596,000. This is the value that we believe to represent the valuation of Neverfail as of November 1994. After round 1 of VC investment: Due to the deal with the Pacific Ridge, Neverfail share prices were going for $1.50 per share The Company was valued at $9 million as of December 1994 according to the case study. Initial value of Pacific ridge investment (December 1995) is: 666,667 * $1.50 + 133,333 * $0.3 = $1,040,000.4 (initial investment, exhibit 7).
The interest you receive on the first investment is $110 per year for three years. You receive $330 on the second investment in the third year and nothing in the first two years. If your discount rate is 6%, what should you pay for each of these investments? Present Value of #1 = $110 + $110 + $110 = $294.03 (1.06) (1.06)2 (1.06)3 Present Value of #2 = $0 + $0 + $330 = $ 277.07 (1.06) (1.06)2 (1.06)3 You will pay more for investment #1 b) You can make two different new products at your plant. Product #1 is expected to earn no profit in the first year, $500 in the second year and $1,000 in the third year.